Robin Hood Tax Strategies

I'll start by saying that I don't like paying taxes and don't know anyone who does. I think that the less I pay in taxes (local, state, or federal) the better things are for my family.

That being said, there is an overwhelming desire to tax "the rich people and big corporations" while giving tax breaks to the middle income earners and the poor of our society. The thought goes like this: The rich people have enough money to afford to pay higher taxes, so let's raise their tax percent (liability) and leave the rest of us alone or give us a tax percent reduction. While we're at it, let's increase the tax percent on large corporations, because we all know they are making obscene amounts of profit anyway. They can afford it. Just like Robin Hood: take it from the rich and give it to the poor.

This sounds great on the surface. But in the free market society that has made the United States so successful this just doesn't hold water. In fact, let's use water as an example. We are all part of the American Economy. We are financially dependent on each other. We all work for someone, have employees, make a product, offer a service, buy things, etc. Think of the water in a bath tub. Even the slightest disturbance at any point in the tub results in ripples (effects) that cover the entire tub. If you open the drain (at one location in the tub) the water level lowers in the entire tub. If you turn the water on and add water at one end, the water level raises across the whole tub. Our economy, and specifically, taxes are very similar.

Let's look at a simple example: if I own a business that produces some product and my material costs go up (for any reason) or my tax liability increases, I have a choice to make with only a few options. Do nothing and make lower profits. Cut costs in other areas of the business. Raise the sale price of my product. I could take a combination approach by cutting some costs, increasing the sale price and accepting lower profits all to a lesser degree that with a singular approach. Let's explore these options a bit.

Do nothing and make lower profits.
If my company makes less profit, bad things can start to happen. Small businesses may have to delay purchasing new equipment. This may lead to a technology gap with my competitors making it more difficult to compete for new business. I may not have enough profit to hire additional people to help better distribute and sell my product. I also may not be able to give my employees a raise this year. This could lead some of them to look for better salaries at other companies. There are many other effects, but let's sum these up: No technological improvements, no expanded ability to grow my sales, no ability to reward my workforce resulting in many leaving to seek higher paying jobs.

Cut costs in other areas of the business.
Often when companies face tough economic times, they try to cut costs. In my example above, let's suppose I cut office supplies spending. I could also cut travel budgets. I would likely critique every non-business-critical expense like employee activities (picnics, bar-b-ques, softball teams, golf tournaments, professional memberships). I would also postpone or cancel any refurbishment of equipment and facilities. So in this strategy, my company ends up using old, deteriorating office equipment (desks, chairs, computers, etc) that will likely not impress any potential customer and limit our ability to secure new sales. My sales team would not be able to pursue new sales as effectively with little or no travle budget. With the lack of employee related activities, the workforce feels unimportant to the management team and productivity slips. As manufacturing equipment ages it is more likely to break down and require significanly more to repair or result in loss of capacity to produce our product. At the same time, our building and property are starting to look unkept and may disuade potential customers from considering us for business.

Raise the sale price of the product.
The third basic strategy would be to simply raise the sale price of the product. This directly impacts our customers financially. If the customer base is 'captive' then this strategy may be successful, but if our competitors do not impose the same price increase, then the customer is likely to purchase the product elsewhere. This results in a loss of sales and operating income for our company. Let's assume for a minute that the customers cannot get this same product from any other source or that all producers similarly raise the sale price on their products. The customer base then bares the total weight of the increase in tax burden that was originally imposed on our company. If our product is a consumer item (TV, cars, Ipods, food, clothing, etc.) then the general buying public (you and me a.k.a. the middle and low income population) are forced to pay more for items that we need or want.

In this simple example, the end result of any increase of tax burden results in potentially catastrophic effects on all levels of our society. Thus, my comparison to the bath tub holds true. If you raise the tax burden on any part of the economy, the entire economy is effected. Tax the rich and big companies and we all pay in some way. Raise taxes on anyone and we all take a bath!